BLOOMBERG COMMODITY INDEX RISES TO EIGHT MONTH HIGH -- BASE METALS ETF REACHES HIGHEST LEVEL IN FOUR YEARS -- BRENT CRUDE OIL EXCEEDS $60 FOR FIRST TIME IN TWO YEARS
BLOOMBERG COMMODITY INDEX REACHES EIGHT-MONTH HIGH... With all of the attention focused on daily stock market records, it may be going unnoticed that commodity prices are starting to show some decent gains. The weekly bars in Chart 1 show the Bloomberg Commodity Index ($BCOM) rising to the highest level in eight months. The chart shows a market that appears to be forming a bottom. After rallying throughout 2016, the commodity index pulled back during 2017 before finding new support at its 62% retracement line (bottom green line). It's been rising since then. Notice also that the blue 10-week moving average has crossed back over the red 40-day average for the first time since April. That's another positive sign for commodity prices.
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Chart 1
BASE METALS AND ENERGY ARE LEADERS... It's not hard to discover where most of that commodity strength is coming from. The biggest commodity gainers are industrial metals. The weekly bars in Chart 2 show the PowerShares Base Metals Fund (DBB) climbing to the highest level in four years. We've written about this before, along with positive articles on ETFs tied to base metals. The DBB includes aluminum, copper, and zinc prices all of which are rising. Base metals jumped again today and are giving a boost to shares tied to them. Energy prices are also leading the commodity complex higher. The weekly bars in Chart 3 show the PowerShares Energy Fund (DBE) nearing a test of its early 2017 high. Its 10-week average has also crossed over its 40-week line. The DBE includes crude oil, gasoline, heating oil, and natural gas. Rising energy prices are giving a lift to energy shares, which are showing upside leadership for the first time this year. A potential upside breakout in WTIC light crude oil may explain why.
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Chart 2
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Chart 3
BRENT CRUDE HITS TWO-YEAR HIGH -- WTIC MAY BE NEXT... The weekly bars in Chart 4 show Brent Crude Oil rising above its early 2017 peak to reach the highest level in more than two years. The chart definitely has a bullish look to it. Brent is the international benchmark for crude oil. The weekly bars in Chart 5 show WTIC Light Crude Oil testing its early 2017 high near $55 a barrel. The fact that Brent has already broken out to the upside increases the odds that WTIC will most likely do the same. In addition, the fact that the premium of Brent over WTIC has widened to the highest level in more than two years (nearly $7) is another positive sign for WTIC (top of chart). That means that WTIC has a lot of catching up to do to its international version. In the past, premiums of that size have usually resulted in a higher price for WTIC. That would be good for energy shares
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Chart 4
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Chart 5
ENERGY SPDR FINALLY SHOWS SOME LEADERSHIP... The recent rise in energy prices may finally be catching the attention of stock traders. The daily bars in Chart 6 show the Energy SPDR (XLE) jumping more than 1% today, and putting it in position to rise to the highest level in more than six months. The solid back line (the XLE/SPX ratio) also shows the XLE starting to exert some leadership since the start of September. Over the last two months, the XLE has gained more than twice as much as the S&P 500 (10% versus 4%). Interest in energy shares has been a long time coming. Energy is the year's weakest sector and is the only one still in the red for the year (-7%). That leaves a lot of catching up to do in a market that keeps hitting new records. That's especially true for investors looking for cheaper parts of the market. Energy certainly qualifies.
